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TMI Blog2016 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... os.1 and 2/original Plaintiffs on 28/10/2015. 3. Appellant - ICICI Bank Limited is the original Defendant No.2 in the suit. Appellant - 3i Infotech Trusteeship Services Limited is the original Defendant No.1 and Respondent Nos.1 and 2 are the original Plaintiff Nos.1 and 2 respectively. For the sake of convenience, parties shall be hereinafter referred to as the "Plaintiffs" and "Defendants" respectively. 4. Plaintiff Nos.1 and 2 filed a suit against Defendant Nos. 1, 2 and Defendant No. 3 - Kingfisher Airlines Limited. Plaintiffs inter alia asked for an order of injunction restraining Defendant Nos. 1 and 2 from assigning or dealing with 20,14,000 shares of United Breweries Limited belonging to Plaintiff No.1. 5. Plaintiff No.1 - United Breweries (Holdings) Limited ("UBHL") is a Company incorporated under the provisions of Companies Act having its registered Office at Bangalore and is a constituent of the UB Group Companies holding shares in various UB Group Companies, including in United Breweries Limited. Plaintiff No.2 - Kingfisher Finvest (India) Limited is a Company incorporated under the provisions of the Companies Act having its registered Office at Bangalore and it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s executed between the Kingfisher Airlines Limited - Defendant No.3 and United Breweries (Holdings) Limited - Plaintiff No.1 and the LPA was executed between ICICI Bank Limited - Defendant No.2, United Breweries (Holdings) Limited - Plaintiff No.1 (as purchasing party) and Kingfisher Finvest (India) Limited Plaintiff No.2 as confirming party. 9. Since one of the conditions of restructuring was that the lenders would convert a portion of their credit facilities into preference share/equity shares of Defendant No.3 - Kingfisher Airlines Limited, Preference Share Subscription Agreement was executed under which an amount of Rs. 170 crores out of existing loan of the ICICI Bank Limited was converted into preference shares of Defendant No.3 - Kingfisher Airlines Limited. By virtue of this, the existing loan of Rs. 573.72 crores was reduced by Rs. 170 crores and the existing loan became Rs. 403.72 crores. Under the third Agreement namely LPA of the same date viz 21/12/2010, Plaintiff No.1 - United Breweries (Holdings) Limited has twofold obligations viz (1) to purchase the loan granted by ICICI Bank Limited to Defendant No.3 - Kingfisher Airlines Limited as and when called upon to do so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assigning it to one SREI Venture Capital Limited in its capacity as the Investment Manager of one India Global Competitive Fund ("IGCF") By virtue of this transfer, the outstanding credit facility by that time alongwith interest was an amount of Rs. 428.36 crores alongwith security for the same i.e. the pledged shares. 14. Thereafter, in December 2013, the ICICI Bank Limited - Defendant No.2 sold in tranches the following equity shares held by it in Defendant No.3 - Kingfisher Airlines viz (a) 7,753,120 shares at a total price of Rs. 35,669,604/- and (b) 9,011,644 shares at a total price of Rs. 35,535,293.80. This was in addition to the prior sale in January-February, 2012 of 96,00,000 shares. According to the ICICI Bank Limited, there was a total shortfall of Rs. 146 crores approximately which resulted from the aforesaid sale. Plaintiff No.1 - United Breweries (Holdings) Limited addressed a letter to the ICICI Bank Limited calling for release of the NDA shares (equity shares of Kingfisher Airlines Limited) which were with ICICI Bank Limited. 15. On 12/12/2013 and 17/12/2013, ICICI Bank Limited issued notice to Plaintiff No.1 - United Breweries (Holdings) Limited, seeking paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares were furnished by Plaintiff No.1 - United Breweries (Holdings) Limited to secure the payment under LPA or NDA and failure of Plaintiff No.1 to perform the NDA would constitute an event of default under NDA. It was submitted that upon reading of these three clauses, it was abundantly clear that the NDA shares were the security for the fulfillment of Plaintiff No.1's LPA obligations including recompense claim. It was submitted that the learned Single Judge had erred in coming to the conclusion that the event of default and recompense amount were sought to be interpolated in the NDA Agreement. It was submitted on behalf of Defendant Nos. 1 and 2 that, on the contrary, these three clauses clearly envisaged a situation that in the event of sale of equity shares of the Kingfisher Airlines Limited held by the ICICI Bank Limited - Defendant No.2, if a loss is caused then the same would be compensated by sale of shares of Plaintiff No.1 - United Breweries (Holdings) Limited under the Non-Disposal Agreement. It was submitted that the learned Single Judge had erred in holding that the only security for the equity shares (CCPS) was the Margosa Fixed Deposit and not the NDA shares, is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LPA to top-up the pledged shares which were only to secure the Loan Purchase Secure Obligation under the LPA. He then invited our attention to Master Debt Recast Agreement, Preference Share Subscription Agreement and the Loan Purchase Agreement. He submitted that the shares which were pledged by three pledged agreements were given for the purpose of securing the loan of Rs. 400 crores approximately and not the equity shares purchased by ICICI Bank Limited in the form of Converted ICICI Bank Facilities. He then submitted that clause 4.1 of the LPA provided for security for the Loan Purchase Secured Obligation and under Clause 4.1.1, the Respondent Nos. 1 and 2 had to ensure that the Loan Purchase Secured Obligation was secured by the first exclusive pledge over such number of fully paid up equity shares of USL which provided a cover of 1.25 times the ICICI Bank Facilities and such number of fully paid-up Equity Shares of Kingfisher Airlines which provided a cover of 0.75 times the ICICI Bank Facilities. By virtue of these two clauses, security for the Loan Purchase Secured Obligation was not to fall below two times the value of the ICICI Bank Facilities and to secure this obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page 201 & 204 at para 11-13 & 25. 6. The Commissioner of Income Tax, Delhi vs. Shiv Raj Gupta (2014) SCC Online Del 7305. It was then submitted that the pledged shares secured only the ICICI Bank Facilities and not the amount of Rs. 170 crores which was converted into equity shares and after assigning entire loan by ICICI Limited to IGCF along with the entirety of the pledged shares, the obligation to provide top-up cover of the pledged shares under clause 4.1.3 of the LPA came to an end and to that extent the NDU Shares had worked itself out. He submitted that ICICI Bank received total consideration of Rs. 428 crores from IGCF in lieu of assigning the said loan of Rs. 403.72 crores and the pledged shares and therefore there was no obligation on the part of Plaintiffs towards the repayment of the loan either under LPA or NDA. It was submitted that IGCF sold the pledged shares far in excess of the loan amount assigned to it and that the IGCF had been ordered by the Hon'ble Karnataka High Court vide order dated 20/06/2014 to deposit the balance amount of Rs. 651 crores in Court. It was submitted that the balance of convenience was entirely in favour of the Respondent Nos.1 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement and (iii) Loan Purchase Agreement. 23. On the other hand, it is the case of Appellants/Defendant Nos. 1 and 2 that the NDA shares were also given for the purpose of security towards the recompense amount as per clause 10.1 of the LPA dated 21/12/2010. 24. Before we consider the rival submissions, admitted facts need to be recapitulated. 25. Original Defendant No.3 - Kingfisher Airlines Limited had taken financial assistance from various Banks including ICICI Bank Limited in 2003. Between 2008 to 2010, Defendant No.3 - Kingfisher Airlines Limited suffered financial difficulties. A proposal was given by them for restructuring/recasting their debts. Negotiations were made between consortium of Banks which included ICICI Bank Limited and Kingfisher Airlines Limited and Plaintiff Nos. 1 and 2 i.e. Respondent Nos. 1 and 2 herein. At the relevant time, the loan which was advanced to Kingfisher Airlines Limited was about 573.72 crores. This loan was secured by the shares held by United Breweries (Holdings) Limited in United Spirits Limited and Kingfisher Airlines Limited and also by Plaintiff No.2 - Kingfisher Finvest (India) Limited in United Spirits Limited. It was therefore agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores along with the pledges shares to India Global Competitive Fund, the shares held under the Non-Disposal Agreement were liable to be released to UBL, whereas, according to the Appellants/Defendant Nos. 1 and 2, the said 20,14,000 shares were given as security to secure the recompense amount in the event of a default committed by Plaintiff No.1 - Respondent No.1 herein, to perform the NDA and on the occurrence of event of default, the Appellants/Defendant Nos. 1 and 2 could, under clauses 3.1(h), (i) and (k) of NDA, enforce the security by selling the NDA shares and appropriate the proceeds of the NDA shares towards discharge of the payment obligations under LPA. 27. In support of their rival submissions, both the parties have relied on all the agreements including definitions of various clauses under the said agreements. Three questions, therefore, which fall for consideration before this Court are : (1) Whether 20,14,000 shares of UBL furnished as security (NDA shares) under Non-Disposal Agreement dated 12/11/2011 was available as security in favour of the Appellants for the payment of their recompense claim arising under Clause 10.1 of the Loan Purchase Agreement dated 21/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. ("USL") (b) 5,91,50,000 shares held by United Breweries (Holdings) Limited in Kingfisher Airlines Limited; and (c) 17,89,410 shares held by Plaintiff No.2 - Kingfisher Finvest (India) Limited in USL (collectively referred to as the "pledged shares") 31. When the Master Debt Recast Agreement was executed, ICICI Bank Limited continued to have the first exclusive charge over the pledged shares by virtue of clause 5.1(II). The debt was divided into Rs. 403.72 crores which was the loan given and a portion of the credit facility was converted into Preference Shares i.e. equity shares of Kingfisher Airlines Limited to the extent of Rs. 170 crores. 32. In order to give effect to the Master Debt Recast Agreement dated 21/12/2010, Preference Share Subscription Agreement was executed on the same date. Similarly, Plaintiff No.1, Respondent No.1 herein i.e. United Breweries (Holdings) Limited gave an assurance to the ICICI Bank Limited in view of agreeing to restructure the Kingfisher Airlines' debt. Under the Loan Purchase Agreement, there were two-fold obligations on United Breweries (Holdings) Limited viz (1) to purchase the loan granted by ICICI Bank Limited to the Kingfisher Airline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Party within 7 Business Days of being called upon to do so by ICICI Bank in writing; or ii. such number of fully paid up equity shares of the Borrower, which provide a cover of 0.75 times the ICICI Bank Facilities as held by the Corporate Obligors, in a form and manner acceptable to ICICI Bank." "4.1.2. Notwithstanding anything to the contrary contained herein, the Confirming party shall create Pledge only over the fully paid up equity shares of USL while the Purchasing Party shall create pledge over fully paid up equity shares of both KFA and USL." ii. In case ICICI Bank is unable to divest either part / whole of the Equity Shares / CCPS due to any reason whatsoever, the Purchasing Party shall pay to ICICI Bank an amount equal to the Converted ICICI Bank Facilities and the Yield Amount (the "Recompense Amount") within 7 (seven) Business Days of being called upon to do so by ICICI Bank in writing. Upon payment of such Redemption Amount, part /whole of the Equity Shares/ CCPS shall stand transferred to the Purchasing Party, as the case may be; "4.1.3. The Corporate Obligors shall ensure that during the currency of this Agreement: i. the Value of the USL equity shares pledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt in Payment of the Recompense Amount or Redemption Amounts. Default has been committed by the Purchasing Party in payment of any portion of the Recompense Amount or the Redemption Amount in terms of this Agreement. (d).... to (m)......." The above tabular form clearly shows that restructured/recast loan of Rs. 403.72 crores was secured by clauses 4.1.1 to 4.1.3 of LPA and an amount of Rs. 170 crores of equity shares was secured by clause No.10.1 of LPA in the event the sale proceeds recovered by ICICI Bank is of a Value lesser than such Converted ICICI Bank Facilities and the Yield Amount. Clause 3.1(h) of NDA secures the ICICI Bank in the event of default by Plaintiff No.1 - UBHL to make good the short-fall after sale of Rs. 170 crores equity shares and in that event ICICI Bank could sell 20,14,000 shares of UBL kept in DP Account through Defendant No.1 - 3i Infotech Trusteeship Services Limited. The contention of the learned Senior counsel appearing on behalf of the Respondent Nos. 1 and 2/original Plaintiff Nos. 1 and 2 that these shares are not secured by this agreement (LPA) is incorrect. 33. Clause 11 of the LPA clearly stipulates that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NDU Provider hereby irrevocably and unconditionally agrees, undertakes and confirms that, during the Term: (a)...... to (f)....... (g) and the NDU Provider : i. shall execute the Power of Attorney (in the manner set out in Schedule II (Format of Power of Attorney) in favour of the Attorney, thereby appointing the POA Agent as its legal attorney to do such acts, deeds and things as may be required under the terms of this Agreement and the Power of Attorney. ii. shall not revoke the authority or terminate the agency granted to the Attorney, pursuant to the irrevocable Power of Attorney nor amend or alter any provision of the Power of Attorney executed pursuant to sub clause (i) above; and iiiI. revocation of the authority so granted under the Power of Attorney shall constitute an Event of Default under the LP Agreement. (h) occurrence of any Event of Default or Potential Event of Default under the MDRA and/or LP Agreement and /or failure of the NDU Provider to do all such acts, deeds and things as may be required under this Agreement shall constitute an Event of Default under this Agreement. The NDU Provider shall rectify / cure such Event of Default within a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount or Redemption Amounts. Default has been committed by the Purchasing Party in payment of any portion of the Recompense Amount or the Redemption Amount in terms of this Agreement. "10.1 Recompense amount: i. In case the Share Sale Proceeds recovered by ICICI Bank is of value lesser than such Converted ICICI Bank Facilities and the Yield Amount which would have accrued to ICICI Bank on such Converted ICICI bank Facilities, then the differential amount (the "Recompense Amount") shall be paid by the Purchasing Party within 7 Business Days of being called upon to do so by ICICI Bank in writing;" The finding of the learned Single Judge has therefore been based on incorrect interpretation of the clauses in the LPA and NDA. 36. ICICI Bank in December, 2013 sold equity shares held by it in Kingfisher Airlines Limited and suffered a total shortfall of Rs. 146 crores approximately from the said sale and, therefore, claimed recompense amount from the United Breweries Ltd. The contention of the Plaintiffs that the ICICI Bank, upon assigning its debt to IGCF alongwith the pledged shares, had no right to claim recompense amount for the short-fall for sale of equity shares is contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present agreement was executed for the purpose of securing the entire loan of the Kingfisher Airlines Limited which was to be purchased by Plaintiff No.1 - UBHL under the Loan Purchase Agreement. It cannot be forgotten that the Loan Purchase Agreement makes clear distinction between the pledged shares and equity shares (CCPS) for the purpose of securing the existing loan (Rs 403.72 crores). Clauses 4.1 and 4.2 provided for top-up of pledged shares. At the same time, equity shares - CCPS (Rs 170 crores) also is secured by clauses 9.1 and 10.1 and the Plaintiff No.1 - UBHL was under an obligation to cover the short-fall, if any, on sale of equity shares. The Non-Disposal Agreement therefore covers both, the pledged shares as as well as the short-fall on sale of equity shares - CPPS since Recital (C ) speaks about fulfillment of all obligations of Plaintiff No.1 - UBHL under the Loan Purchase Agreement. The intention of parties, therefore, become very clear from the Recitals as well as the contents of the clauses of the Non-Disposal Agreement. The contention of Mr. Seervai, the learned Senior Counsel appearing on behalf of Respondent Nos.1 and 2/original Plaintiff Nos. 1 and 2 that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .L.R. (1998) 896 has observed as under:- ......"The result has been subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal' interpretation has been discarded. The principles may be summarised as follows. (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of of their utterance: so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensable part in the way we interpret what anyone is saying. No one, for example, has any difficulty in understanding Mrs. Malaprop. When she says "She is an obstinate as an allegory on the banks of the Nile", we reject the conventional or literal meaning of allegory as making nonsense of the sentence and substitute "alligator" by using our background knowledge of the things likely to be found on the banks of the Nile and choosing one which sounds rather like "allegory". Mrs. Malaprop's problem was an imperfect understanding of the conventional meanings of English words. But the reason for the mistake does not really matter. We use the same process of adjustments when people have made mistake about names or description or days or times because they have forgotten or become mixed up. If one meets an acquaintance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as observed in paras 11 and 25 as under:- "11. In interpreting a contract, the Court cannot place emphasis on an isolated provision divorced from the context and unrelated to the other provisions which govern contractual obligations. Contracts represent business understandings between the parties. Commercial dealings between persons who are well versed in the transaction of business are regulated by contracts which parties ought to govern themselves. The law regulates those contracts and provides an ordered framework in which business dealings can be implemented. The duty of the Court when called upon to assess where the balance lies in a contractual dispute, is to read the contract as a whole in order to understand the business meaning which the parties attributed to their obligations. Interpretation in law must ensure in commercial matters that the view which the Court takes records the sense which the parties to an arms length transaction attribute to the terms which they incorporate. The law is not divorced from business realities nor can the vision of the judge who interprets the law be disjointed from the modern necessities to make business sense to business dealings." "25. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at an arrangement so that the interest component could be converted into equity shares and the loan component would be reduced to 403.72 crores with interest. However, both these components have been fully secured; the loan component by the pledged shares and the top-up shares and equity component by the Fixed Deposit of margosa and 20,14,000 shares of United Breweries Limited which could be sold in the event of default. The event of default occurred when there was a short-fall of Rs. 146 crores in December, 2013 after the Appellant - ICICI Bank sold the pledged shares and called upon the Plaintiff No.1 - United Breweries (Holdings) Limited to pay the recompense amount. The submissions made by Mr. Seervai, the learned Senior Counsel appearing on behalf of the Plaintiffs therefore cannot be accepted. In fact, in the present case, the balance of convenience lies in favour of the Defendant No.1 - 3i Infotech Trusteeship Services Limited and Defendant No.2 - ICICI Bank Limited. The price of the shares of Kingfisher Airlines Limited has been continuously falling. When the impugned order was passed the value was Rs. 235.26 crores and when the Appeals were filed it was Rs. 193.14 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll established, but as has been observed by Viscount Simon in Charles Osenton & Co. v. Jhanaton [1942 AC 130) 'the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles in an individual case." The appellate judgment does not seem to defer to this principle." In the present case, the learned Single Judge, in our humble view, has clearly misinterpreted the Non-Disposal Agreement and the Loan Purchase Agreement and has held that LPA has worked itself out without taking into consideration the relevant clauses which clearly mentioned that the LPA would subsist till all the dues of ICICI Bank are paid in full. The other findings also, in our view, are perverse since they do not take into consideration the relevant clauses in LPA and NDA. We are, therefore, of the view that, in fact, the observations made by the Apex Court in the case of Wander Ltd (supra) would squarely apply to the facts of the present case and we have therefore no hesitation in setting aside the impugned order. 41. Accordingly we answer the three ques ..... X X X X Extracts X X X X X X X X Extracts X X X X
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